Contractors Choose SBA’s Mentor-Protege Program Over DoD’s by Overwhelming Margin

Many contractors seeking federally-sanctioned mentor-protégé arrangements choose between the programs offered by the U.S. Small Business Administration and the U.S. Department of Defense. According to the numbers, though, it’s not always much of a choice: contractors pick the SBA’s program by an overwhelming margin.

The DoD recently issued a final rule making its mentor-protégé program permanent. Until this year, the DoD’s mentor-protégé program—which, per DoD’s website, was “established in the midst of the First Gulf War,” had been a “pilot” program, subject to occasional Congressional renewals, for more than three decades. In its final rule, DoD provided statistics about contractor participation in its mentor-protégé program:

The number of new DoD Mentor-Protégé agreements entered into in FY 2021 was 50, with a total of 104 active agreements; in FY 2022, 29 new agreements were entered into, with a total of 62 active agreements; and in FY 2023, 19 new agreements were entered into, with a total of 69 active agreements. The average number of new agreements entered into during the last three fiscal years was approximately 33, with an average of 78 total active agreements per fiscal year. DoD estimates 44 new agreements will be entered into in FY 2024, with a total of 76 active agreements in place. As of January 5, 2024, there are 62 unique small entities with active agreements. Since the number of small entities that will enter into new agreements is unknown, DoD cannot provide a more precise estimate of the number of small entities to which this rule will apply.

In sharp contrast to the 76 active mentor-protégé agreements the DoD predicts for 2024, the SBA’s list of active mentor-protégé agreements under its program includes 1,827 such agreements as of April 1, 2024. In other words, participation in the SBA’s program is roughly 24 times that of DoD’s! It’s the sort of overwhelming margin that even Vladimir Putin—who “won” his recent reelection with 87.3% of the vote—would envy.

Why do so many more federal contractors choose the SBA’s mentor-protégé program?

Unlike the statistics presented above, I don’t have any hard answers, just educated guesses. But why let that stop me? I’m going to make those guesses, but I’m curious to hear what others in the government contracting community think, too.

First things first: while DoD is by far the largest federal agency when it comes to contracting (accounting for more than half of contracting dollars), the fact remains that many contractors don’t sell to DoD. For these contractors, the SBA’s mentor-protégé program may appear more attractive, because that program’s key contracting benefits—and I’m getting to one of those benefits shortly—apply across most federal agencies.

Second, the eligibility criteria are stricter under the DoD’s program, for mentors and protégés like. The DoD’s program assumes that mentors generally will be “other than small” businesses, although there are exceptions. In contrast, the SBA’s regulations state that “[a]ny concern that demonstrates a commitment and the ability to assist small business concerns may act as a mentor.” With respect to protégés, the DoD limits eligibility to various socioeconomic categories, plus so-called “nontraditional defense contractors.” Additionally, the DoD requires that the protégé be a small business under the NAICS code associated with its primary industry. The SBA, in contrast, allows any small business to qualify as a protégé, including a company that is not a small business in its primary NAICS code but is seeking business development assistance in a secondary NAICS code.

I suspect that these structural differences between the two mentor-protégé programs are responsible for some of the SBA’s numerical advantage. In my view, though, the main reason for the 24-to-1 ratio can be summed up in two words: “joint ventures.”

Participants in the SBA’s mentor-protégé program may form joint ventures to pursue any contract for which the protégé is eligible. For example, a joint venture between a large business mentor and an 8(a)-certified protégé can pursue both small business set-aside contracts and 8(a) contracts, provided that the protégé qualifies as a small business under the size standards associated with those contracts. Through the SBA mentor-protégé program, large businesses can participate, at the prime contract level, in contracts for which they would otherwise be relegated to the status of subcontractor.

In my experience, this joint venturing benefit is the primary—if not the only—reason many large businesses decide to become mentors under the auspices of the SBA’s mentor-protégé program. Protégé firms, too, often prioritize the joint venturing component of the mentor-protégé relationship, believing that joint venturing with a mentor will their odds of winning and successfully performing federal contracts.

While the DoD’s mentor-protégé program offers other benefits to the mentor and protégé alike, it does not provide the powerful joint venturing benefit available under the SBA’s program. Little wonder, then, that contractors opt for the SBA mentor-protégé program by such an overwhelming margin.

One final point. Some readers be thinking "wait a second--it's not a binary choice. You can participate in both the SBA and DoD mentor-protégé programs at the same time!" That's correct as far as it goes, but it's a little more complicated than that.

The SBA's regulations specifiy that the prospective protégé must, as part of the application process, "identify any other mentor-protégé relationship it has through another federal agency or SBA and provide a copy of each such mentor-protégé agreement to SBA." Further, the prospective protégé must "identify how the assistance to be provided by the proposed mentor is different from assistance provided to the protégé through another mentor-protégé relationship, either with the same or a different mentor."

In short, while nothing outright prohibits a protégé from participating in both programs at the same time, even with the same mentor, the SBA can be rather skeptical when it comes to approving a mentor-protégé agreement between two companies who already participate in the DoD's program. In my experience, some contractors who might otherwise have considered participating in both programs have had second thoughts when they've realized that a DoD agreement could make it more challenging to enter the SBA's program.

The results are in and the SBA's mentor-protégé program is the clear winner among contractors. Unless the DoD adds a joint venturing component to its program (something that may require Congressional approval), I don't see that preference changing.

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Boring but important disclaimer: The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.